The rule of thumb to keep children sane is to invite as many children as the birthday child's age. At 2 yrs old, big parties can be very overwhelming to little ones. Tears are not uncommon. A large crowd of people singing happy birthday at a high decibal can make a child quite upset. I experienced that even though my 2 yr old daughter was very jovial and social. Keep it simple.
A home party is perfect for this age- especially if there are other kids of the same age. Toddlers are constantly wandering off- so a park, as others suggested, could get very tiring for some moms as they are constantly chasing down their kids who are going after ducks, birds and what have you.
Bubbles are popular for these ages. Read a story book.(maybe something to go along with the theme of the cake).Have a little toddler pool. some toys. This age does not play together, they play next to eachother. Have a cake, some finger foods like chicken nuggets, halved grapes and strawberries,crackers, cheese stix, etc- open gifts, you're set! (or you can opt to open gifts after the party, just let eveyone know ahead of time what the plan is).
I would keep the focus geared toward the children instead of on the adults, as someone else suggested. If you want to have a party for the adults have a bbq on another day.